Invest in a breakeven analysis
Decisions. You and your clients make them every day. Some are small: "Do I take my family to the movies at $10 each and another
$30 at the candy stand, or do I just rent a DVD and order in pizza?" Others have a larger impact: "Do I invest in an ultrasound,
or do I just have the mobile unit come in and charge me for each procedure?" The recent economic shift hit the Richter scale
hard. Now more than ever, every decision counts.
Those who manage their business decisions will do well while those who continue without major changes will continue to see
their practices decline—one client at a time—until sustainability is no longer possible.
Now is the time to use one of the great management tools almost universally ignored by practicing veterinarians: the breakeven
point. We all have accountants who are skilled in using this tool. But like the computer system we paid through the nose for
and now use as a cash register, many of us don't use our accountant's skills to our advantage.
The breakeven analysis shows you how many transactions your practice needs to see a profit.
My example in Tables 1 and 2 is a busy solo practice. It sees an average of 12 patients each day in a five-and-a-half-day
workweek and has four OTC-only purchases daily. Annual revenue is $600,000. The owner, serving first as a veterinarian, receives
22 percent of each transaction, or $132,000. Then, as the practice owner and manager, she receives another $99,000. The total
of $231,000 is, of course, before local, state and federal taxes, which will certainly reduce the income to about $180,000.
The breakeven analysis shows that with current expenses typical of such a practice, the veterinarian must realize $2,408,
or about 200 transactions, each month to reach the first penny of profit. The costs of running this hospital just to get to
the breakeven point are $288,960. That means the veterinarian must work until the last week in May before being assured that
the practice has covered its expenses for the year. After that point, the veterinarian as the owner takes home about 80 percent
of each transaction. Until that last week of May, in terms of compensation, the veterinarian is an associate only.
The breakeven analysis is valuable in many ways. The number and dollar value of your transactions determine the profit for
the year. A decline of 500 transactions (10 per week) will lower profits by $20,000.
Any change in fees, costs of labor or supplies will change the the number of transactions needed to break even and the owner's
pretax income. There are few better decision-making or forecasting tools. Ask your accountant to make sure you have this tool
as a spreadsheet so you can add or subtract variables and see the direction your finances will go.
Keep your chin up. It's a tougher world out there, and previous success will be harder to achieve over the next decade. I
guess that's why God created management consultants. He also created fleas, ticks, heartworms and nematodes, which have supported
many practices for many years.
Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity. He can be reached at 112 Harmon Cove Towers Secaucus, NJ 07094; (800) 292-7995;
; fax: (866) 908-6986.